Biofuel producers hope to rebound after tough year
SCOTLAND, S.D. (AP)--Cellulosic ethanol, the next big hope for a biofuels industry hampered during the past year by volatile commodity price swings and shrinking profit margins, is continuing its slow march toward commercialization.
Poet LLC, the nation's top ethanol producer, has opened the spigots on an $8-million pilot-scale biorefinery at its Scotland, S.D., research center that will produce 20,000 gallons of fuel each year from the corn cobs and fiber normally left behind in fields.
Poet's demo plant is a precursor to a larger $200 million commercial-scale biorefinery scheduled to open in Emmetsburg, Iowa, in 2011.
The privately held firm is one of several backed by hundreds of millions of dollars in U.S. Department of Energy grants aimed at jump-starting the evolution to fuels made from such non-corn feedstocks as switchgrass, wheat straw and wood chips.
Poet has been making ethanol from corn for more than 20 years, but Chief Executive Jeff Broin said that adding cobs into the mix will increase the ethanol yield of each corn bushel by 11 percent and the per-acre yield by 27 percent.
Production growth in both areas will help the U.S. reach an aggressive renewable fuels standard that will require 36 billion gallons of biofuels to be blended into gasoline by 2022, Broin said.
"There's tremendous potential in both grain-based and cellulosic ethanol to significantly reduce our country's dependence on energy," he said.
Nearly all of the ethanol produced domestically comes from corn, and 2008 was a tough year for the industry.
VeraSun Energy Corp., the nation's No. 2 producer, filed for Chapter 11 bankruptcy protection after tightening credit markets erased its lifeline to weather the swings in corn and fuel prices.
And shares of Aventine Renewable Energy Holdings Inc., Pacific Ethanol Inc., and BioFuel Energy Corp., all lost about 95 percent of their value during the year.
But the burgeoning cellulosic ethanol industry would likely be facing investor anxiety even if the nation wasn't embroiled in a recession and credit crunch, said Cole Gustafson, a biofuels economist at North Dakota State University in Fargo, N.D.
Existing corn ethanol plants have consistent performance benchmarks that translate well to a balance sheet, but the cellulosic industry is experimenting with a broad range of feedstocks that can be confusing to investors.
Firms are working with multiple conversion processes, both biological and thermochemical, and the industry needs to work out its markets for feedstocks and figure out how to transport them, Gustafson said.
"As a consequence, it's going to be very difficult to get the capital from Wall Street and other investors that are outside of agriculture," he said.
Although no cellulosic biorefinery has reached large commercial status as of yet, Poet's plant is one of several pilot plants that have opened during the past year.
Rapid City, S.D.-based KL Energy Corp. began operation of a plant near Upton, Wyo., in January 2008 that can produce about 1.5 million gallons of ethanol annually from wood waste. Massachusetts-based Verenium Corp. in April started up a Jennings, La., plant that will turn agricultural waste and wood products into about 1.4 million gallons of fuel per year.
AE Biofuels Inc., of Cupertino, Calif., opened a 9,000-square-foot Butte, Mont., demonstration plant in August that will test the creation of fuels from such nonfood products as wheat straw and grasses.
Making ethanol from such a diverse lineup of materials is no easy task.
Cellulose is dense and not nearly as easy to untangle from the rest of the plant materials as, say, corn. Feedstocks typically have to be pretreated, and companies are continuing to perfect the enzymes needed to extract complex sugars and bring down the cost.
And the standard yeast that breaks down simple sugars can't digest complex sugars, so more advanced microrganisms are needed during fermentation.
The Energy Department, intent on making cellulosic ethanol competitive by 2012, awarded $385 million in 2007 to six companies hoping to build the nation's first large biomass-to-fuel plants.
Gustafson said government support is driving the industry.
"What I'm really interested in is when is the private market for these ventures going to take off, and that's going to be a ways down the road," he said.